This document summarizes the key aspects of IAS 36 regarding impairment of assets. IAS 36 aims to ensure assets are not carried at more than their recoverable amount. It defines terms like carrying amount, cash-generating units and impairment loss. The standard outlines how to identify impaired assets, measure recoverable amount, recognize impairment losses, allocate losses to cash-generating units including goodwill, and reverse impairment losses. Entities must disclose impairment losses, reversals and reasons for changes in carrying amounts.

1. IAS 36
Impairment of
Assets

2. Overview
 OBJECTIVE
 SCOPE
 DEFINITIONS
 IDENTIFYING AN ASSET THAT MAY BE IMPAIRED
 MEASURING RECOVERABLE AMOUNT
 RECOGNISING AND MEASURING AN IMPAIRMENT LOSS
 CASH-GENERATING UNITS AND GOODWILL
 REVERSING AN IMPAIRMENT LOSS
 DISCLOSURE
 Questions and Discussion

3. OBJECTIVE
 The objective of this Standard is to prescribe the
procedures that an entity applies to ensure that its
assets are carried at no more than their
recoverable amount

4. SCOPE
The standard shall be applied for all assets except IAS
20, IAS 12, IAS 19, IAS 40, IAS 41 IFRS 4, IFRS 5,
IFRS 9, IFRS 15

5. DEFINITIONS
Carrying amount:- is the amount at which an asset is recognized after
deducting any accumulated depreciation (amortization) and Accumulated
impairment losses thereon.

6. continued
A cash-generating unit:- is the smallest identifiable
group of assets That generates cash inflows that are
largely independent of the cash Inflows from other
assets or groups of assets

7. continued
An impairment loss:- is the amount by which the carrying
amount of an asset or a cash-generating unit exceeds its
recoverable amount.
The recoverable amount of an asset or a cash-
generating unit:- is the higher of its fair value less costs of
disposal and its value in use.

8. IDENTIFYING AN ASSET THAT MAY BE
IMPAIRED
 An entity shall assess at the end of each reporting period whether there is
any indication that an asset may be impaired. If any such indication exists,
The entity shall estimate the recoverable amount of the asset.

9. continued
o Irrespective of whether there is any indication of impairment, an entity shall
also test:
 an intangible asset with an indefinite useful life & goodwill acquired in a
business combination
Note:- Impairment test should be made before the end of the period at the
same time on yearly basis

10. continued
Indications for Impairment:-
External sources of information:-
 The decline in asset values
 significant change in technological, market, economic
or legal environment in which the entity operates
 the increase in market interest rate or market rate of
return on investment

11. continued
Internal sources of information:-
 obsolescence or physical damage
 decline in performance
 significant plan change made by the management
 decline in performance

12. MEASURING RECOVERABLE
AMOUNT
 Recoverable amount:- is the higher of its fair value less
costs of disposal and its value in use.

13. RECOGNISING AND MEASURING AN IMPAIRMENT
LOSS
 The value of the impairment loss is the difference between the
carrying amount and its recoverable amount
 An impairment loss shall be recognized immediately in profit or
loss, unless the asset is carried at revalued amount in
accordance with another Standard e.g IAS 16

14. CASH-GENERATING UNITS AND
GOODWILL
 If it is not possible to estimate the recoverable
amount of the individual asset, an entity shall
determine the recoverable amount of the cash-
generating unit to which the asset belongs

15. continued
Example
1. A mining entity owns a private railway to support its mining
activities. The private railway could be sold only for scrap
value and it does not generate cash inflows that are largely
independent of the cash inflows from the other assets of the
mine.
2. A bus company provides services under contract with a
municipality that requires minimum service on each of five
separate routes. Assets devoted to each route and the cash
flows from each route can be identified separately. One of the
routes operates at a significant loss.

16. continued
Note:-
o Cash-generating units shall be identified consistently from
period to period for the same asset or types of assets, unless a
change is justified.
o For the purpose of impairment testing, goodwill acquired in a
business combination shall, from the acquisition date, be
allocated to each of the acquirer’s cash generating units.
o A cash-generating unit to which goodwill has been allocated
shall be tested for impairment annually

17. continued
o The impairment loss shall be allocated to reduce the
Carrying amount of the assets of the unit (group of
units) in the following order:
(a) first, on goodwill
(b) then, to the other assets on pro rata basis
o In allocating an impairment loss in accordance an
entity shall not reduce the carrying amount of an
asset below the Highest of:
(a) its fair value less costs of disposal
(b) its value in use ,and (c) zero.

18. REVERSING AN IMPAIRMENT
LOSSAn entity shall assess at the end of each reporting period whether there is any
indication that an impairment loss recognized in prior periods for an asset other
than goodwill may no longer exist or may have decreased.
External sources of information:-
The increase in asset values, Favorable change in technological,
market, economic or legal environment in which the entity
operates, the decrease in market interest rate or market rate of
return on investment
Internal sources of information:-
Increase in performance, Favorable plan change made by
the management
,

19. continued
An impairment loss recognized in prior periods for an asset other
than goodwill shall be reversed if, and only if, there has been a
change in the estimates used to determine the asset’s
recoverable amount since the Last impairment loss was
recognized.
Note:-
a reversal of an impairment loss shall not exceed the carrying
amount of the asset that was in the prior period
A reversal of an impairment loss for an asset other than goodwill
shall be recognized immediately in profit or loss, unless the asset
is carried at revalued amount in accordance with another

20. continued
Reversing an impairment loss for a cash-generating unit:-
A reversal of an impairment loss for a cash-generating unit shall be allocated to the
assets of the unit, except for goodwill, pro rata with the carrying amounts of those
assets.
In allocating a reversal of an impairment loss for a cash-generating unit the carrying
amount of an asset shall not be increased above the lower of:
(a) its recoverable amount and
(b) the carrying amount of the asset in the prior period
Reversing an impairment loss for goodwill- An impairment loss recognized for goodwill
shall not be reversed in a subsequent period.

21. Cost model
example
• 1 January 2011 you buy a machine
– cost = $1 million
– useful life = 10 years
– depreciation method = straight-line
– nil residual value
• 31 December 2014 the recoverable
amount = $300,000
• 31 December 2016 the recoverable
amount of the machine = $800,000
© Michael JC
Wells
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22. Disclosure
An entity shall disclose the following for each class of assets:
 the amount of impairment losses recognized in profit
or loss
 the amount of reversals of impairment losses
recognized in profit or loss
 Explanation of the events and circumstances that
contributed to the impairment loss or reversal

23. END OF IAS 36
Any Questions?